I want to thank Tony Aaron and USC for inviting me to speak this morning, as well as Paul and Christine for joining me on this panel.
 
I officially became FASB chair last July, after 30-plus years in public accounting. While I wasn’t quite ready to retire from EY, the opportunity to help develop accounting rules was one I could not pass up. It’s an honor to serve on the FASB and carry out its mission to provide transparent, unbiased information to our capital markets.
 
I filled the seat held by past chairman, Russ Golden—a frequent speaker at this event. During his seven years leading the FASB, Russ strengthened the standard-setting process and left a top-notch organization in his wake. We appreciate all he has done.
 
Since joining the FASB, I’ve gained an even greater appreciation for the professionalism and expertise of my fellow Board members—and for my predecessors in this role, including Russ. Thanks to their stewardship, I was fortunate to inherit a strong body of GAAP standards that continues to provide capital market stakeholders, from Main Street to Wall Street, information that helps drive better-informed capital allocation decisions.
 
Another former FASB chairman I’d like to acknowledge is Denny Beresford, who is likely listening in today. Denny is a USC graduate who led the FASB from 1987 to 1997, during a critical period of the Board’s history. He successfully navigated the FASB through the stock options expense controversy that many believe could have spelled the end for the FASB. Ask him about it.
 
I feel a certain kinship with Denny despite never having the opportunity to directly work together. Like me, he is an EY alum. Before he joined the FASB, he held the same role at EY that I did. And in some respects, we continue to grapple with the same standard-setting challenges—not to mention the fact that our office in Norwalk, Connecticut is still the same.
 
Thanks to Google, I stumbled upon an interview Denny did with Journal of Accountancy, published after his term ended in 1997.  In that interview, Denny said, and I quote:
 
“From time to time someone asks, ‘haven’t you resolved all the issues yet? Is there really a need to have standard setting continue indefinitely?’ I always say yes."
 
I agree with Denny. As long as the economy continues to evolve . . . as long as innovators continue to develop new forms of financial transactions . . . there will be a need for standard setting.  And there will always be an opportunity to improve existing standards, of which there are many.
 
When the FASB was established in 1973, there was already an abundance of accounting guidance developed by the AICPA and previous accounting boards. Accountants had lots of rules before the FASB even issued its first standard.
 
Fourteen years later, when Denny became FASB chairman, he inherited over 2,000 pages of authoritative GAAP accounting literature. Audience members of a certain age will remember they were published in thick volumes known as the FASB’s Original Pronouncements and there was also guidance issued by the EITF and AICPA.
 
That’s a lot of GAAP.
 
When I started as chair in 2020, there were more than 11,000 pages in our print Codification volumes—not including the basis for conclusions, which were contained in the 1987 Original Pronouncements.
 
That’s a lot more GAAP.
 
What I’m trying to say is that, at this point, there are few issues that have not been addressed in standard-setting literature. And while we will continually improve that literature, it begs the question, “where do we go from here to move GAAP forward?”
 
Soon, the FASB will open that question to our stakeholders. And it’s one of the items I’d like to focus on today.
 
I’ll start by talking about our agenda consultation project—and four potential areas where the FASB may be able to move GAAP forward in the coming years.  By “forward,” I mean providing investors and other allocators of capital with better information.
 
Next, I’ll talk about our current agenda projects, including goodwill, segment reporting, and supply chain financing.
 
Finally, I’ll update you on our post-implementation review projects, including revenue recognition, leases, and credit losses.
 
Before I go on, I must remind you that official positions of the FASB are reached only after extensive due process and deliberations. In other words, what I am about to say are my views and only my views.
 
So how do we move GAAP forward?
 
Near the end of this month, the FASB will issue an Invitation to Comment as part of our agenda consultation project—our first in five years. This project will help us identify what I call achievable standard-setting projects—projects we can add to our agenda and successfully complete. These are projects that fulfill our primary mission to improve financial accounting and reporting standards and that also are top priorities for our stakeholders.
 
Since the beginning of this year, Board and staff members and I have spoken to a diverse group of more than 200 stakeholders, including investors and other financial statement users. We have also engaged in multiple discussions with our advisory groups, who represent a cross section of our constituents—including those focused on small and large public companies, private companies, and not-for-profit organizations.
 
As you might expect, stakeholders don’t always agree on what we should do. But some common themes did emerge. Based on what we heard, we will ask stakeholders to weigh in on four broad categories of standard-setting focus. They include:

• Disaggregation of financial reporting information
• Evolving areas of financial reporting
• Reducing unnecessary complexity in key areas of GAAP
• Identifying improvements to FASB’s standard-setting process. 

I’ll take each one separately.
 
Investors and other allocators of capital have indicated support for more disaggregation of financial reporting information.  They want more granular information in the income statement, the statement of cash flows, or the notes to the financial statements. They noted that this would help them better assess the results of operations and estimates of future cash flows and risks, such as risks relating to earnings, foreign currencies, legislation, reputation, and income taxes.
 
A broad range of stakeholders, including investors, practitioners, and academics, cited the need for more GAAP in evolving areas of financial reporting. These include transactions where no specific accounting or disclosure requirements exist, or when current accounting outcomes are counterintuitive to the economics they were intended to portray. Examples include:

• The definition of a derivative
• Environmental, social and corporate governance (ESG)-related transactions, such as renewable energy credits and emissions allowances
• Financial key performance indicators (KPIs)
• Government grants for business entities
• Internally developed intangible assets, including software. 

Many expressed the view that the Board should address these areas now to provide timely and necessary guidance.
 
Practitioners and academics noted we should revisit certain areas of existing GAAP to reduce unnecessary complexity. In their view, unnecessary complexity affects all stakeholders.  They pointed to topics like:

• Balance sheet classification
• Consolidation
• Debt modifications
• Distinguishing liabilities from equity
• Materiality considerations for disclosures. 

Finally, many preparers and practitioners want the FASB to challenge our processes, to enhance transparency and communication. These improvements might include:

• Making the Codification more understandable and easier to navigate
• Enhancing our cost-benefit analysis framework
• Standardizing language we use to describe transition requirements for new guidance. 

When we issue the Invitation to Comment, we’ll ask stakeholders to weigh in on all four categories—or suggest others.  We’ll look to them to rate the priority and urgency of each topic, suggest potential solutions we should consider, and provide insight on the feasibility and potential impact of those solutions on investors, preparers, and practitioners.
 
We will use this feedback to identify areas where there might be a sufficiently pervasive need to improve GAAP. If there is, we’ll seek feasible solutions whose benefits are likely to justify the expected costs of change.  And of course, as always, we’ll discuss these issues in public meetings.
 
One last point—the Invitation to Comment is intended to complement the FASB’s formal agenda request process—not replace it. We will continue to evaluate agenda requests as they come in—and to consider improvements in real time as needed.
 
Now I’ll move on to our agenda projects in progress.
 
The FASB continues to make progress on two major projects that have been in flight for several years: goodwill and segment reporting.  For the goodwill project, we are currently pursuing an “impairment with amortization” model that would reflect that what is acquired and initially ascribed to goodwill decreases in value over time. Although the Board has not yet deliberated specific changes to the impairment model, I expect that an impairment test will remain as part of the model.
 
Our project on segment reporting would provide investors with more information about how a company’s various operating segments perform. We’re currently focused on a consistent “chief operating decision-maker approach” and expect to issue an exposure document for public comment in early 2022.
 
Last October, the FASB added an agenda project that would increase transparency around the use of supplier finance programs involving trade payables. Currently, there are no explicit requirements in GAAP that require companies to disclose information about their supplier finance programs. Financial statement users, including analysts and ratings agencies, asked the Board to consider adding some. The FASB also received an agenda request from the Big Four accounting firms on aspects of the disclosure for supplier finance programs. We expect to discuss the issue at our public meeting in late June.
 
This brings me to another important priority: the FASB’s post-implementation review of the revenue recognition, leases, and credit losses standards to ensure they’re working as we intended.

Post-implementation review, or PIR, is the quality control phase of our work that is performed under the oversight of our Board of Trustees. As with everything we do, we rely on outreach with investors, preparers, and practitioners to help us identify areas of improvement not only with those standards but also with our standard-setting process.
 
Now that public and some private companies and organizations have implemented revenue recognition, leases, and credit losses, we have real data to help us understand what’s working and what isn’t. Last summer, the FASB staff created PIR work plans to guide our outreach activities. A few months ago, the project teams shared publicly what they heard from stakeholders on our leases and CECL standards, and what actions we might take in response.
 
We continue to conduct PIR outreach. For example, on May 20, we hosted a virtual roundtable to discuss implementation of the credit losses standard. Representatives of financial institutions of various sizes, regulators, and others gave us input on how CECL performed during the COVID-19 crisis. We also heard views on how we might improve the scope and presentation of purchased financial assets with credit deterioration, or PCD.  There was also some discussion around the relevance of troubled debt restructurings, or TDRs, as a measure of troubled loans now that banks are using a more forward-looking CECL model.
 
Using this input, the FASB will decide whether to add a project or projects to the technical agenda. As with all feedback, we will analyze what we learned to continue to fine-tune the standard and improve the implementation experience for small and private institutions who have yet to apply it.
 
As I hope I’ve demonstrated today, your engagement in the standard-setting process continues to be most critical to our current and future success. Now more than ever, we need your input—on our future agenda, on current projects, and on the performance of standards already in play in our capital markets. I urge you to continue to follow our activities, provide comments, and stay engaged. And I look forward to responding to your questions after our panel discussion.